Thursday, March 31, 2011

Robert Amaee on U.K. Bribery Act Guidance

Yesterday, in a much anticipated development, the United Kingdom Ministry of Justice released (here) its long awaited guidance (here) as to the U.K. Bribery Act - a delayed law now set to go live on July 1, 2011.

The U.K. Serious Fraud Office, the U.K. law enforcement agency tasked with enforcing the Bribery Act, also issued a release (here) and prosecuting guidance (here).

In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London - see here) provides insight and analysis of the U.K. developments.


The Bribery Act: Countdown to Implementation

The UK Ministry of Justice yesterday published its long awaited Bribery Act 2010 (the “Bribery Act”) guidance entitled “Guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).” This publication marks the official start of a ninety day countdown to the implementation of the Bribery Act which will now be brought into force on 1 July 2011.

Companies that already have reviewed and updated their anti-bribery and corruption procedures will be ahead of the game but will still need to study the new guidance to see what, if any, further amendments may be required. Those who have yet to complete the process of updating their procedures to ensure compliance no doubt will draw a modicum of comfort from the fact that they have a further ninety days in which to digest and absorb the guidance and implement the necessary policies and procedures.

The comments made by the Minister of Justice, Ken Clarke QC MP, and the guidance itself aim to reassure companies that the Bribery Act will be enforced with common sense and pragmatism.

The Minister of Justice ushered in the guidance by saying that "[t]he ultimate aim of [the Bribery Act] is to make life difficult for the minority of organizations responsible for corruption, not to burden the vast majority of decent and law-abiding businesses."

That is a message that prosecutors at the UK Serious Fraud Office (“SFO”) -- the organisation tasked with leading enforcement efforts under the Bribery Act -- have espoused for some time. What is less clear is whether the guidance provides any tangible assistance on some of the Bribery Act's thorniest issues such as the UK’s jurisdiction over non-UK registered companies, the extent of liability for the actions of third parties and the boundary between acceptable corporate hospitality and a prosecutable bribe, particularly when foreign officials are concerned.

Government Policy and the Section 7 Corporate Offence

The guidance, as expected, focuses on six high level principles which companies will need to familiarise themselves with and which are supported by 11 case studies. It also sets out the Government policy in relation to the section 7 corporate offence stating that “[t]he objective of the [Bribery] Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf” and recognises that “no bribery prevention regime will be capable of preventing bribery at all times.” This part of the guidance already has attracted criticism from some respected quarters. (See here).

The guidance deals with the section 1 offences of bribing another person but the most noteworthy commentary relates to the section 6 offence (Bribery of foreign public officials). This section highlights the fact that bribery of a foreign public official could be prosecuted under the section 1 offence but that evidential difficulties in proving that a bribe was paid to a foreign public official with the intention to induce him or her to perform his or her role “improperly”, something the guidance calls “a mischief”, means that prosecutors would seek to rely on the section 6 offence which needs no such proof. The guidance goes on to make a number of assertions in relation to the interpretation of section 6 which bear closer scrutiny. The guidance says “…it is not the Government’s intention to criminalise behaviour where no such mischief occurs…” In other words it appears that the guidance may be advocating that the concept of “improper performance” be read into section 6. What is clear is that Parliament did not include any such wording in section 6 in clear contrast to section 1.

Corporate Hospitality and other Business Expenditure

In addressing the topic of corporate hospitality and other business expenditures, the guidance adopts what can only be described as a permissive tone. It codifies the comments that the Minister of Justice has made over the last few weeks and states that “[b]ona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour” and goes on to endorse “reasonable” and “proportionate” hospitality and business expenditure.

In determining what is reasonable and proportionate, the guidance proposes taking into account “all of the surrounding circumstances” which include matters such as “the type and level of advantage offered, the manner and form in which the advantage is provide, and the level of influence the particular foreign public official has over awarding business”. It states that “the more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditure provided to a foreign public official, then, generally, the greater the inference that it is intended to influence the official to grant business or a business advantage in return.”

Much of this is elementary and already part of the mantra of compliance departments but the guidance goes further and appears to give the green light to certain interactions with foreign public officials which would, today, be closely and critically scrutinised by those responsible for compliance. As an example, the guidance envisages that the provision of flights, airport to hotel transfers, hotel accommodation, “fine dining” and tickets to an event for a foreign public official and his or her spouse are “unlikely to raise the necessary inference” to engage section 6 and therefore unlikely to violate the Act so long as there is a business rational for the trip.

A Question of Jurisdiction

The guidance makes it clear that “the courts will be the final arbiter as to whether an organisation ‘carries on a business’ in the UK taking into account of the particular facts in individual cases” and sets out the “Government’s intention” in relation to the phrase “carries on a business, or part of a business in the United Kingdom.” The thrust of the approach appears to be a reliance on a “common sense approach.”

In cases where there may be dispute, the guidance again defers to the courts as the final arbiter but says that “… the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught.” That much is uncontroversial but what follows has elicited a great deal of comment. The guidance states that “[t]he Government would not expect, for example, the mere fact that a company’s securities have been admitted to the UK Listing Authority’s Official list and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a ‘relevant commercial organisation’ for the purposes of section 7.” This commentary has been welcomed in some quarters but has been criticised by some as undermining the concept of a level playing field. (See here).

In the vast majority of cases, it will be clear whether a company is or is not carrying on a business or part of a business in the UK. There will, however, be cases where there is room for debate. If, for example, a non-UK registered company sets up a joint venture with a UK company and the joint venture is not registered in the UK, is the non-UK registered company carrying on a business or part of a business in the UK? What if the non-UK registered company then seconds an employee to work at the UK partner’s offices in London looking after the joint venture - is the non-UK registered company carrying on a business or part of a business in the UK? What if it sends 5 employees? Those are the type of intricacies that need to be worked through by company advisors and in the worst case prosecutors and the courts.

Associated Persons

When considering the potential liability imposed on a company by virtue of its supply chains or its involvement in a joint venture, the guidance introduces the concept of “the level of control”-- a concept that does not appear in the Bribery Act -- as one of the “relevant circumstances” that would be taken into account when seeking to determine if the person creating liability can be deemed to be an “associated person” i.e. someone who is performing services for or on behalf of a company that falls within the UK’s jurisdiction. The guidance states that “[t]he question of adequacy of bribery prevention procedures will depend in the final analysis on the facts of each case, including matters such as the level of control over the activities of the associated person and the degree of risk that requires mitigation.”

Facilitation Payments

In the run up to the publication of the guidance, there had been some suggestion that there may an attempt to ‘soften’ the approach to facilitation payments. This is not at all the case. While the Government has recognised the problems faced by commercial organisations in some parts of the world and in certain sectors, the guidance reiterates that there are no exemptions in the Act and sets out the OECD position that facilitation payments are corrosive and that exemptions create artificial distinctions that are “difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees and other associated person, perpetuate an existing ‘culture’ of bribery and have the potential to be abused.” In circumstances where an individual has no alternative but to make a facilitation payment in order to “protect against loss of life, limb or liberty”, the guidance states that “the common law defence of duress is very likely to be available”. It stresses that it is a matter for prosecutorial discretion whether to prosecute an offence and defers to the Joint Prosecution Guidance when it comes to the “prosecution of facilitation payments.”


Companies will of course be pleased to have more guidance and will look to draw as much comfort as they can from the more 'permissive' tone of the MoJ guidance but global companies will not be looking at their UK exposure in isolation and will certainly not be rushing to relax their anti-bribery and corruption policies and procedures. It is not much comfort for a company to avoid prosecution in the UK for interactions with foreign government officials for example but to be in violation of their industry codes of conduct or be called to account in a US court for that same conduct. Global companies will continue to be mindful of their global exposure.

Wednesday, March 30, 2011

New ABA Global Anti-Corruption Task Force Website

The ABA's Global Anti-Corruption Task Force, co-chaired by Andrew Boutros (Department of Justice) and Markus Funk (Perkins Coie), has launched a new website here.

The website "provides up-to-date, practitioner-oriented information and analysis on global anti-corruption matters" and the opportunity to publish peer-reviewed articles.

For today's post, I am pleased to send you over to the website (here) for my essay "Corruption Is Bad … But What is It, and What Should Be Done?"

Tuesday, March 29, 2011

DOJ Files "Foreign Official" Response Brief In O'Shea Matter

With attention focused on the "foreign official" challenge in the Lindsey matter pending in the C.D. of California (a ruling may soon occur), the DOJ yesterday filed (here) its "foreign official" response brief in the O'Shea matter pending in the S.D. of Texas. See here for the prior post.

The DOJ's response is substantively similar to its response in the Lindsey matter. See here for the prior post.

In its O'Shea response, the DOJ attaches the same declaration of Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State) as it filed in the Lindsey matter. See here for the prior post. As noted in this prior post, the judge in the Lindsey ordered the declaration be stricken.

Monday, March 28, 2011

Ball Corporation Quietly Resolves FCPA Enforcement Action

Magic has returned to the Butler campus for a second straight March. Perhaps it is not magic. Just hard work, a bend-but-don't-break attitude, and poise under pressure. Whatever it is, Butler basketball continues to be an amazing story and teaches lessons beyond the hardwood.


Last week, Ball Corporation (here), a publicly traded company with divergent business segments including an aerospace and technologies segment that derived 96% of 2010 sales from contracts funded by various agencies of the U.S. federal government (see here), resolved an SEC enforcement action.

In an administrative cease and desist proceeding (here) the SEC found, in summary fashion, as follows.

"From July 2006 through October 2007, Ball, through its Argentine subsidiary Formametal, S.A., offered and paid at least ten bribes, totaling at least $106,749, to employees of the Argentine government to secure the importation of prohibited used machinery and the exportation of raw materials at reduced tariffs."

"Although certain accounting personnel at Ball learned soon after Ball acquired Formametal in March 2006 that Formametal employees may have made questionable payments and caused other compliance problems before the acquisition, the Company failed to take sufficient action to ensure that such activities did not recur at Formametal after Ball took control of the Argentine company. Within months of Ball’s acquisition of Formametal, two Formametal executives—the then-Formametal President and then-Formametal Vice President of Institutional Affairs (hereinafter the “President” and “Vice President of Institutional Affairs,” respectively)—authorized improper payments to Argentine officials. The true nature of the payments was mischaracterized as ordinary business expenses on Formametal’s books and records and went undetected for over a year."

As set forth in the SEC's findings, Ball acquired Formanmetal in March 2006 and the wholly-owned subsidiary's (a manufacturer of aerosol cans) financial results are reported on a consolidated basis in Ball's financial statements.

According to the SEC's findings, the improper payments were in connection with equipment imports, copper scrap export waivers.

As to equipment imports, the SEC found as follows.

"Formametal paid bribes totaling over $100,000 in 2006 and 2007 to secure the importation of equipment for use in its manufacturing process. Formametal’s President authorized at least two of these payments. In most cases, the bribes were paid to induce government customs officials to circumvent Argentine laws prohibiting the importation of used equipment and parts. The bribes often appeared on invoices from a non-governmental customs agent for Formametal. The payments were invoiced as separate line items described inaccurately as “fees for customs assistance,” “customs advisory services,” “verification charge,” or simply “fees,” were invoiced in addition to other customs-related fees, and were sometimes in rounded peso amounts. To further obscure that the payments were really bribes, Formametal posted the payments inaccurately identified as “customs advice” or “professional fees” to an “Other Expenses” account or in some instances to an account named for the related equipment."

As to copper scrap export waivers, the SEC found as follows.

"Formametal paid a bribe that its President authorized in October 2007 in an attempt to bypass high government duties imposed on copper scrap exports. These duties, which were generally 40 percent of the value of the copper, were imposed by Argentina in an effort to discourage export sales of domestically produced copper and copper scraps. The President estimated the additional profit from exporting this copper scrap with the export duty waivers versus selling it inside Argentina would be approximately $1.5 million annually."

"For six months prior to August 2007, Formametal unsuccessfully sought to gain government approval to export the scrap without the customarily high duties. After giving up on obtaining the waiver legitimately, on October 18, 2007, Formametal disbursed $4,821, representing the first of five bribe installments authorized by its President to obtain an export duty waiver. The payment was funneled through Formametal’s third party customs agent. Obscuring that the transaction was a bribe, Formametal inaccurately recorded the payment as “Advice fees for temporary merchandise exported” in an “Other Expenses” account. Although the President believed that the payments were requested by a customs official and would result in a copper scrap export duty waiver, no copper scrap export shipments were made pursuant to the improper payment."

As to Ball's internal controls, the SEC found as follows.

"Ball’s and Formametal’s weak internal controls, which included importing equipment into Argentina in 2006 and 2007 without appropriate invoices and documentation, made it difficult to detect that the subsidiary was repeatedly violating Argentine law through the payment of bribes. Ball’s weak internal controls also factored into the Company’s failure to prevent further abuses at Formametal, after Ball accountants learned of a bribe paid by Formametal to import machinery for use in its manufacturing process. As a result, Formametal continued to make improper payments during 2007."

"Further, Ball lacked sufficient internal controls to bring about effective changes after information available to Ball’s executives indicated anti-bribery compliance problems at Formametal. For example, key personnel responsible for dealing with customs officials remained at Formametal, even though external due diligence performed on Formametal suggested that Formametal officials may have previously authorized questionable payments."

Based on the above findings, the SEC found that Ball violated the FCPA's books and records and internal control provisions.

The SEC's order notes that the "Commission considered remedial acts promptly undertaken by Respondent, Respondent's voluntary disclosure of these matters to the Commission, and cooperation afforded the Commission staff."

Without admitting or denying the SEC's findings, Ball agreed to a cease and desist order prohibiting future FCPA book and records and internal controls violations and agreed to pay a $300,000 civil penalty.

The last paragraph of the SEC order states "that the Commission is not imposing a civil penalty in excess of $300,000 based upon [Ball's] cooperation in a Commission investigation and related enforcement action."

Charles Smith (Skadden - here) represented Ball.

SEC FCPA enforcement actions, including administrative actions, are often announced with a SEC press release. However, there was no SEC press release issued last week as to the Ball enforcement action.

Ball's most recent annual report, filed February 28, 2011, stated as follows.

"As previously reported, the company investigated potential violations of the Foreign Corrupt Practices Act in Argentina, which came to our attention on or about October 15, 2007. The Department of Justice and the SEC were also made aware of this matter, on or about the same date. The Department of Justice informed us in 2009that it had completed its investigation and would not bring charges. The SEC’s staff has concluded its investigation and a resolution is expected during 2011. Based on our investigation to date, we do not believe this matter involved senior management or management or other employees who have significant roles in internal control over financial reporting."

Friday, March 25, 2011


Two feature articles this week, one from the New York Times the other from Canada's Globe and Mail, focus on business dealings in Libya.

The New York Times article (here) by Eric Lichtblau, David Rohde and James Risen begins by noting that "some companies, including several based in the United States, appeared willing to give in to" Libya's demand for monetary contributions to help Libya pay $1.5 billion for its role in the downing of Pan Am Flight 103 - as a condition of continuing to do business in the country.

The article also notes that after the U.S. reopened trade with Libya in 2004, American and international oil companies, telecommunications firms and contractors "discovered that Colonel Qaddafi or his loyalists often sought to extract millions of dollars in “signing bonuses” and “consultancy contracts” — or insisted that the strongman’s sons get a piece of the action through shotgun partnerships."

Among other examples cited, the articles notes that "in 2008, Occidental Petroleum, based in California, paid a $1 billion "signing bonus" to the Libyan government as part of a 30-year agreement." According to the article, "Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license."

One strange aspect of the FCPA is that it does not prohibit payments to foreign governments, only foreign officials. See e.g., DOJ Opinion Procedure Release 09-01 (here) stating that the conduct at issue would "fall outside the scope of the FCPA" in that the things of value "will be provided to the foreign
government, as opposed to individual government officials ...".

The Globe and Mail article (here) by Nathan Vanderklippe begins as follows.

"Near the centre of Tripoli sits the bunker, residence and military command post of Moammar Gadhafi. It is hidden behind three concentric rings of defensive walls. It is a fortress that sprawls over six square kilometres. But for much of the past decade, those working hardest to penetrate it have not been citizens rising up against a despot. They have, instead, been wealthy Western companies, intent on wringing riches from the Libyan desert’s massive oil reserves. For some of them, gaining access to Col. Gadhafi – whether directly, or through one of his powerful sons, or through a shadowy network of well-connected “consultants” – was just one of the many challenges of operating in a country some remember as downright bizarre."

Thursday, March 24, 2011

Questions Abound In IBM Enforcement Action

Last week, the SEC announced (here) a settled FCPA enforcement action against International Business Machines Corporation ("IBM").

This post summarizes the enforcement action and then addresses the many questions raised by the enforcement action.

Summary of Enforcement Action

According to the SEC complaint (here): "During the period from 1998 through 2009, in violation of the Foreign Corrupt Practices Act of 1977, employees of certain of [IBM's] subsidiaries and a majority-owned joint venture provided cash payments, improper gifts, as well as improper travel and entertainment to government officials in South Korea and China."

The conduct at issue focused on:

IBM-Korea, Inc. ("IBM-Korea"), a South Korean corporation "wholly-owned indirectly by IBM International Group B.V, which, in turn is wholly-owned by IBM;"

LG IBM PC Co. Ltd. ("LG-IBM"), a South Korean joint venture formed in 1996 by IBM-Korea (51% owner of the JV) and LG Electronics ("LG") (49% owners of the JV); and

IBM (China) Investment Company Limited and IBM Global Services (China) Co. Ltd. (collectively "IBM-China") - entities "owned by IBM China/Hong Kong Limited, a Hong Kong company that is ultimately owned by IBM."

In summary fashion, the SEC alleged as follows.

"From 1998 to 2003, employees of [IBM-Korea] and [LG-IBM] made payments to various government officials in South Korea. The purpose of these payments was to secure the sale of IBM products through IBM-Korea and LG-IBM's business partners. During the relevant period, these managers paid approximately KRW 216,832,500 (South Korean Won), or $207,000, in cash bribes to South Korean government officials, including providing improper·gifts and payments of travel and entertainment expenses."

"From at least 2004 to early 2009, employees of [IBM-China] engaged in a widespread practice of providing overseas trips, entertainment, and improper gifts to Chinese government officials. The misconduct in China involved several key IBM-China employees and more than 100 IBM China employees overall."

As to IBM, the parent-company issuer, the SEC alleged as follows.

"Despite its extensive international operations, IBM lacked sufficient internal
controls designed to prevent or detect these violations of the FCPA. During the period 1998 to 2009, IBM had corporate policies prohibiting bribery and procedures relating to compliance with the FCPA; however, deficient internal controls allowed employees of IBM's subsidiaries and joint venture to use local business partners and travel agencies as conduits for bribes or other improper payments to South Korean and Chinese government officials over long periods of time."

"During the period 1998 to 2009, IBM failed to make and keep books and records that accurately reflected the improper payments made in South Korea and China. Instead, these payments were recorded as legitimate business expenses."

The body of the SEC's complaint alleges various "things of value" provided to alleged South Korean "foreign officials" including shopping bags filled with thousands of dollars, cash-filled envelopes exchanged in parking lots and free personal computers, and travel and entertainment expenses.

According to the SEC, such "things of value" were: "in exchange for designating IBM-Korea a preferred supplier of mainframe computers to [an alleged government entity] and for placing orders with IBM-Korea at higher prices;" "in exchange for (1) maintaining IBM-Korea as the supplier of mainframe computers to [an alleged government entity]; and (2) for helping an IBM-Korea business partner win bids to supply mainframe computers and storage equipment to [an alleged government entity] worth more than [$21 million]; "in exchange for [an alleged "foreign official's] assistance to IBM-Korea in obtaining a contract with [an alleged government entity] worth approximately [$13 million] for the installation of a mainframe computer in 2002;" "to entice [foreign official's] to purchase IBM products:" "to win a contract to supply 657 (later increased to 825) personal computers valued at [approximately $1.4 million]; "in exchange for providing LG-IBM with certain confidential information regarding the product specifications on [an alleged government entity's] request for procurement;" "to persuade employees of [an alleged government entity] to purchase IBM products;" and to entice alleged foreign officials "to purchase IBM products or to provide information to assist LG-IBM in the bidding process."

The body of the SEC's complaint as to China conduct alleges as follows.

"From at least 2004 to early 2009, IBM-China employees created slush funds at local travel agencies in China that were then used to pay for overseas and other travel expenses incurred by Chinese government officials. In addition, IBM-China employees created slush funds at its business partners to provide a cash payment and improper gifts, such as cameras and laptop computers, to Chinese government officials. IBM failed to record accurately these payments in its books and records."

Specifically, the SEC alleged as follows:

"Between 2004 and 2009, IBM's internal controls failed to detect at least 114
instances in which (1) IBM-China employees and its local travel agency worked together to create fake invoices to match approved [Delegation Trip Requests] DTRs; (2) trips were not connected to any DTRs; (3) trips involved unapproved sightseeing itineraries for Chinese government employees; (4) trips had little or no business content; (5) trips involved one or more deviations from the approved DTR; and (6) trips where per diem payments and gifts were provided to Chinese government officials."

Based on the above allegations, the SEC charged IBM with violating the FCPA's books and records and internal control provisions. As noted in the SEC release, IBM, without admitting or denying the SEC's allegations, consented to the entry of a final judgment permanently enjoining the company from future FCPA violations. IBM agreed to pay $10 million (disgorgement of $5.3 million, $2.7 million in prejudgment interest, and a $2 million civil penalty).

Peter Barbur and Evan Chessler (Cravath, Swaine & Moore - here and here) represented IBM.

Questions Abound

For starters, this is not the first time IBM has been the focus of an FCPA enforcement action.

In December 2000 (see here), the SEC found, in a cease and desist proceeding, that IBM violated the FCPA books and records provisions in connection with a $250 million contract to integrate and modernize computer systems in Argentina. As part of the settlement, "IBM consented to the entry of an Order that requires IBM to cease and desist from committing or causing any future violation of [the FCPA's books and records provisions].

Given that IBM was charged last week with FCPA books and records violations, IBM has clearly violated this 2000 court order.

In my recent "Facade of FCPA Enforcement" article (here), I highlight various pillars that contribute to the facade of FCPA enforcement.

Pillars include, unsupported legal conclusions serving as the foundation for an enforcement action, including as to "foreign official" and disgorgement issues; the tendency of factually similar cases being resolved materially different ways; and bribery, yet no bribery.

These pillars are present in the IBM enforcement action.

For starters, who were the "government officials in South Korea and China." Were they traditional bona-fide government officials or employees of alleged state-owned or state-controlled enterprises and thus "foreign officials" under the enforcement agencies' interpretation - an interpretation currently the subject of judicial challenges?

As to the South Korean officials, the complaint merely alleges that the "foreign government officials involved worked for sixteen South Korean government entities." These officials included the "Chief of Operations for the Electronic Operations Division" of an entity; an employee of the same entity; a "manager of the government-controlled entity"; the "Director of Planning" of another entity; employees of an entity; an employee of a "state-owned agency of the South Korean government;" a "Director of Information Technology" at another entity; employees of another entity; and "key decision makers at ten other" entities.

As to the Chinese officials, the complaint merely alleges that the individuals were associated with "government-owned or controlled customers in China for hardware, software, and other services."

Based on the descriptions in the complaint, it seems as if the "foreign officials" were all employees of SOE entities. If so, two out of three corporate FCPA enforcement actions in 2011 (IBM and Maxwell Technologies - see here) involve SOE employees.

Why no FCPA anti-bribery charges against IBM or the relevant subsidiaries (accepting of course the SEC's "foreign official" interpretation)?

According to the SEC, the conduct at issue took place between 1998 and 2009. Further, according to the SEC, "in connection with the conduct described herein, IBM, directly or indirectly, made use of the mails or the means or instrumentalities of interstate commerce in connection with the acts, transactions, practices and courses of business alleged in this Complaint."

Why no DOJ involvement?

It is very common for the DOJ and SEC to announce FCPA enforcement actions on the same day. Thus, one can assume (perhaps future events will prove otherwise) that the DOJ elected to sit this one out.


The SEC's complaint alleges vivid instances of bribery (not always seen in FCPA enforcement actions) in connection with multi-million dollar contracts.

Yet, no bribery - not even civil FCPA anti-bribery charges.

Is this another instance where the U.S. enforcement agencies look first at the corporate offender, its customers, and its products, and then craft a resolution that will hurt the least?

After all, one of IBM's largest customer segments is the government (federal, state, etc.) see here.

Did this play any role in how the enforcement action was resolved?

The SEC charged IBM only with FCPA books and records and internal controls violations. Yet, as in several other cases, the SEC pursued a disgorgement remedy. As noted in my Facade article (pages 981-984) non-FCPA disgorgement case law clearly holds that disgorgement may not be used punitively. It is difficult to see how mis-recording of a payment (a payment the SEC does not allege violated the FCPA's anti-bribery provisions) can properly give rise to a disgorgement remedy. See also here from Philip Urofsky and Danforth Newcomb on this issue.

In a transparent legal system, similar facts are supposed to be resolved with similar charges. However, it is questionable whether this fundamental principle (one that inspires trust and confidence in a legal system) is followed in many FCPA enforcement actions.

The China-related charges against IBM regarding excessive travel and entertainment expenses are nearly identical to two previous FCPA enforcement actions - the December 2007 enforcement action against Lucent Technologies and the December 2009 enforcement action against UTStarcom, Inc.

Lucent was resolved via a DOJ non-prosecution agreement (here) and an SEC enforcement action charging only FCPA books and records violations (here).

UTStarcom was resolved via a DOJ non-prosecution agreement (here) and an SEC enforcement action charging FCPA anti-bribery as well as books and records and internal controls violations (here).

IBM, as detailed above, is presumably being resolved without any DOJ involvement and an SEC enforcement action charging only FCPA books and records violations.

Three cases - all involving in whole or in part allegations of providing excessive travel and entertainment expenses to Chinese "foreign officials" - resolved in three different ways.


And now, as one reader put it, the question all FCPA Professor blog readers (at least this particular reader) are dying to know.

Butler or Wisconsin?

I am a born and raised cheesehead and graduate of the University of Wisconsin Law School.

However, my allegiance is to my employer - Butler University. Let's face it, Butler is an awesome, feel-good story. Student-athletes in every sense of the word, home games at historic Hinkle Fieldhouse, a coach who, a few years ago, left his job selling pharmaceuticals to become a volunteer coach (since promoted), and a small, cozy campus to top it off.

BU-TLE- R U a Bulldog - hell ya!

Wednesday, March 23, 2011

Lindsey Defendants Move to Strike State Department "Foreign Official" Declaration *UPDATE* Judge Strikes State Department Declaration

Monday's post (here) detailed the recent declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State in the Lindsey "foreign official" challenge pending in the Central District of California.

The Lindsey defendants have moved (here) to strike the State Department declaration. Among other arguments made, the Lindsey defendants state as follows.

"The opinion of one employee of the Department of State, or even of the Department of State as a whole, on the terms of the Convention and what the treaty required of the United States, as well as the meaning of the FCPA, a United States criminal statute, has no bearing on the matter before the Court. In any event, it is the job of the federal courts, not the executive branch, to be the final arbiter of what the FCPA actually provides. See generally Marbury v. Madison, 1 Cranch 137, 177 (1803) (“It is emphatically the province and duty of the judicial department to say what the law is.”)."

"On the other hand, the foreign policy implications of a particular interpretation, and how to deal with them, are the business of Congress and the President to address. Mr. Johnson’s suggestion to this Court to decide foreign policy is inappropriate. Courts concern themselves with the interpretation of the law as written. Congress is perfectly capable of amending the statute if it decides it is necessary to do so in light of a court’s decision. See generally McNally v. United States, 483 U.S. 350, 360 (1987) superseded by statute, Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181 (“If Congress desires to go further, it must speak more clearly.”)."

Alternatively, the Lindsey defendants argue that if the Court is inclinded to consider the State Department declaration, that it should order Mr. Johnson to appear at the March 24th motion hearing. As noted in an exhibit to the motion to strike, the DOJ has stated that it "will not voluntarily produce Mr. Johnson as a witness at that hearing."


In an order yesterday, presiding judge Howard Matz ordered (here) the State Department declaration be stricken.

For additional coverage see here.

Tuesday, March 22, 2011

FINRA Reminds Firms of Their Obligations Under the FCPA

The Financial Industry Regulatory Authority (FINRA) (see here) is the largest independent regulator for all securities firms doing business in the United States. FINRA oversees nearly 4,560 brokerage firms, about 163,465 branch offices and approximately 630,820 registered securities representatives.

On the heels of increased FCPA scrutiny of financial institutions, private equity investors etc., specifically as to interactions with sovereign wealth funds and other foreign government owned or controlled investment vehicles, FINRA has released (here) a "Regulatory Notice" to remind firms of their "obligations under the Foreign Corrupt Practices Act."

The notice states as follows:

"FINRA advises member firms to review their business practices to ensure they are complying with all of their obligations under the FCPA. A member firm’s failure to comply with its FCPA obligations will be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade)."

FINRA's annual conference (here) will also feature a session that discusses the importance of a FCPA compliance program and due diligence of broker-dealers with foreign subsidiaries and affiliates.

Monday, March 21, 2011

State Department Declaration in Lindsey "Foreign Official" Challenge

In its opposition brief (here) in the Lindsey "foreign official" challenge, the DOJ states at footnote 5:

"If this Court were to interpret the FCPA in such a way that officials of state-owned and state-controlled enterprises could not be foreign officials, the United States would be out of compliance with its treaty obligations under the OECD Convention. The government has requested a declaration from the State Department confirming this assessment and explaining its implications for U.S. foreign policy. Given the short response period, the declaration could not be finalized, but the government will endeavor to secure the declaration before argument on this motion and will file it if and when it is received."

Last Friday, the DOJ filed a declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser's Office of the United States Department of State - see here.


Readers may also be interested in reviewing the OECD Convention (here) including commentary 15; a previous post (here) on the OECD Convention and U.S. positions; and a previous post (here) on how another OECD signatory country views the term "foreign public official."

Friday, March 18, 2011

"Foreign Official" Issue Fully Briefed in Lindsey Matter

Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee - defendants in an FCPA case pending in the Central District of California - filed a reply brief (here) to the DOJ's opposition to defendants' motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

See here for the prior post on the defendants' motion to dismiss.

See here for the prior post on the DOJ's opposition brief.

Other "foreign official" challenges pending (although not as far along in terms of briefing) include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).

Thursday, March 17, 2011

Assistant Attorney General Lanny Breuer On ....

Earlier this week, Assistant Attorney General Lanny Breuer spoke at the 3rd Russia and Commonwealth of Independent States Summit on Anti-Corruption. See here for his remarks.

Breuer's remarks touched upon a number of topics including the following as excerpted below.

On Corruption Generally

"Corruption affects countries rich and poor, large and small, and it has particularly harmful effects on emerging economies. When a developing country’s public officials routinely abuse their power for personal gain, its people suffer. Roads are not built, schools lie in ruin, and basic public services go unprovided. And when corruption takes hold in any nation, its political institutions tend to lose legitimacy, threatening democratic stability and the rule of law. Corruption undermines the health of international markets, stifling competition and repelling foreign investment. Moreover, corruption is a 'gateway crime, allowing money laundering, gang violence, terrorism and other crimes to thrive."

On the FCPA's Legislative History

"The FCPA was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the “Watergate” scandal in the United States, which led to the resignation of President Richard Nixon in 1974 and resulted in a dramatic plunge in Americans’ overall trust in government. In 1976, following certain prosecutions for illegal use of corporate funds arising out of the Watergate scandal, the U.S. Securities and Exchange Commission, or S.E.C., which regulates the securities industry in the United States, issued a “Report on Questionable and Illegal Corporate Payments and Practices.” In its report, the S.E.C. determined that foreign bribery by U.S. corporations was “serious and sufficiently widespread to be a cause for deep concern.” S.E.C. investigations revealed that hundreds of U.S. companies had made corrupt foreign payments involving hundreds of millions of dollars. With this background, the U.S. Senate Banking Committee concluded that there was a strong need for anti-bribery legislation in the United States. “Corporate bribery is bad business,” the committee said in its Report. “In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet.”"

"As the U.S. House of Representatives’ Report on the FCPA put it, a strong anti-bribery law can “help U.S. corporations resist corrupt demands.” In the words of the former chairman of a major oil company, quoted in the report, “If we could cite our law which says we just may not do it, we would be in a better position to resist” the pressure that sometimes comes from foreign officials. That was true in 1977, and it’s true now."

On FCPA Enforcement

"The passage of the FCPA was a milestone. But the Act did not become a strong enforcement mechanism overnight. Indeed, in the first decades immediately following the law’s enactment, many saw the FCPA as a slumbering statute. That is no longer the case. In recent years, the Criminal Division has dramatically increased its FCPA enforcement efforts. To give you a sense: in 2004, we charged two individuals under the FCPA and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16.5 million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion."

"The FCPA is a strong enforcement mechanism, and we are not shy about using it."

On Holding Non-U.S. Actors Accountable

"We have traditionally also pursued foreign executives who work for U.S. corporations or for foreign corporations that trade on U.S. exchanges, as well as the foreign corporations themselves. For example, in 2007, Christian Sapsizian, a French citizen and former executive at Alcatel, pleaded guilty to two counts of violating the FCPA, and in 2008 he was sentenced to 30 months in prison on those charges. In addition, we recently resolved a wide-ranging investigation against the Swiss-based freight-forwarding company Panalpina World Transport (Holding) Ltd., its U.S. subsidiary, and several foreign and domestic oil and gas service providers. Thus, as the Sapsizian and Panalpina cases show, any Russian citizen working for an American company in Russia or for a Russian company that trades on an American exchange, as well as any Russian company that trades on such an exchange, are also within our reach."

"We have on more than one occasion brought charges against foreign officials under U.S. money laundering statutes, alleging that those officials laundered the proceeds of foreign bribery through U.S. financial institutions. In 2009, for example, we indicted two former Haitian government officials on money laundering charges for their alleged roles in a scheme to bribe officials of Haiti’s state-owned national telecommunications company. Thus, as the Haiti Teleco case shows, Russian officials who launder the proceeds of foreign bribes through U.S. financial institutions could also be liable for FCPA-related offenses."

On the Kleptocracy Asset Recovery Initiative

"... Last year our Asset Forfeiture and Money Laundering Section initiated a Kleptocracy Asset Recovery Initiative, which is designed to target and recover the proceeds of foreign official corruption that have been laundered into or through the United States. In November of 2009, at the Global Forum on Fighting Corruption and Safeguarding Integrity, in Qatar, Attorney General Holder pledged to redouble the United States’ commitment to recovering foreign corruption proceeds. The Kleptocracy Initiative represents a concrete step toward fulfilling that commitment; and once the initiative is fully implemented, it will allow the Justice Department to recover assets on behalf of countries victimized by high-level corruption."

Wednesday, March 16, 2011

Prosecutorial Common Law

A guest post today from Michael Levy (see here), co-chair of the White Collar Investigations and Enforcement Group at Bingham McCutchen. Levy, a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr., expounds on what he has called "prosecutorial common law" (see here for the recent Corporate Crime Reporter article).


We have seen this movie before, and it ends with the government’s interpretation of a federal criminal statute knocked down, 9-0, by the United States Supreme Court.

Prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable, but it has happened already and may well happen again in the context of the Foreign Corrupt Practices Act because of a phenomenon I’ve referred to for a number of years as "prosecutorial common law" (see here).

There are no law school classes or scholarly papers on prosecutorial common law, yet it governs, as a practical matter, an enormous amount of the daily life of the criminal justice system in white collar cases. Prosecutorial common law can be thought of as the "common law of settlement." In areas, such as complex white collar crime, in which prospective defendants either are highly unlikely to challenge the government in court (e.g., corporations) or highly unlikely to have both the fortitude and the personal wealth or strong support of another entity advancing fees to be able to challenge the government thoroughly and completely (e.g., most individuals), almost all cases are settled.

But settling cases creates very different incentives for the two sides. The government has a long-term interest in developing the law because it is charged with enforcing that law not just against the settling party, but also against other parties in the future. Thus, the government has a strong institutional interest in pushing ever more aggressive interpretations of the governing criminal statute. On the other hand, the defendant, whether a corporation or an individual, is not particularly concerned about the scope of the statute as it might be applied to others in the future. The defendant wants the least possible punishment, right now.

So, in many white collar cases, the government pushes hard for the defendant to plead guilty pursuant to expansive interpretations of a statute’s jurisdiction and/or scope of liability, and defendants readily accept those interpretations in exchange for what they perceive to be the lowest available penalty.

But what happens next?

In the absence of much decided case law in the area -- because so many defendants strike plea agreements rather than litigating their cases -- prosecutors start to believe that the law means whatever they have been able to get defendants to agree to in earlier plea agreements. After all, they reason (ignoring the parties’ different interests in settlements), "Why would Global MegaCorp have agreed to plead guilty on this very same theory of liability if it didn’t believe that (1) we had jurisdiction and (2) the conduct clearly violated the criminal statute?"

And when the next case comes around, the government stretches the theory of liability or jurisdiction a little bit further. Again, nobody sets out to develop a statutory interpretation that goes beyond what any Supreme Court Justice would conclude was intended by Congress, but that is consistently what winds up happening because prosecutors (rather than judges) and settlements (rather than well-reasoned judicial opinions) wind up creating the "common law" that prosecutors use to interpret these statutes.

We have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA. In the honest services context, prosecutors pressured numerous employees to plead guilty to committing or conspiring to commit honest services fraud (18 U.S.C. § 1346) even though they did not personally benefit from the alleged fraud and, indeed, acted at the direction of their corporation’s management. See, e.g., United States v. Calger, No. 05-286 (S.D. Tex. July 13, 2005). So, for the Department of Justice, honest services fraud clearly prohibited such conduct -- after all, people had agreed to go to jail under that theory. It took very well-financed and steadfast individuals -- Jeffrey Skilling and Conrad Black -- both of whom lost in the trial court and the Court of Appeals, to challenge DOJ’s interpretation all the way to the Supreme Court. And, when the Supreme Court looked at the interpretation DOJ over time had come to take for granted, it ruled 9-0that such an expansive interpretation of the statute would render honest services fraud unconstitutional and emphatically rejected the government’s interpretation.

Likewise, DOJ used its own expansive interpretation of the scope of liability for obstruction of justice under 18 U.S.C. § 1512(b) to put Arthur Andersen out of business and thousands of its employees out of work. Yet, once again, when that statutory interpretation was put to the test of nine Supreme Court Justices -- rather than a single, scared defendant willing to settle at almost any cost -- all nine Justices flatly rejected the government’s interpretation of the statute.

By now, you see where I’m going with this.

Notwithstanding the Andersen and Skilling warning signs, prosecutorial common law appears to be alive and well and indeed thriving in the FCPA context. For example, the government has persuaded a number of corporations and individuals to admit liability under the FCPA for bribing a foreign official even though that official was not employed by the government but was merely an employee of a company in which the government held a financial interest. United States v. Control Components Inc., No. 09-00162 (C.D. Cal. 2009) (“foreign officials” were employees of state-owned companies in China, South Korea, Malaysia, and the United Arab Emirates); United States v. Lindsey Mfg., No. 10-1031 (A)-AHM (S.D. Tex. 2010) (“foreign officials” were employees of a Mexican state-owned entity); United States v. ABB Inc., No. H-10-664 (S.D. Tex. 2010) (same). In recent years, corporations even have settled FCPA enforcement actions with DOJ and the SEC premised on alleged corrupt payments made to employees of business enterprises that were only minority-owned by a foreign government. See, e.g., United States v. Kellogg Brown & Root LLC, No. H-09-071 (S.D. Tex. 2009); United States v. Alcatel-Lucent, S.A., Crim. No. 10-20907 (S.D. Fla. 2010).

Similarly, DOJ also has used prosecutorial common law to stretch the purported reach of the FCPA’s jurisdiction. For example, a foreign company or person is subject to the antibribery provisions of the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place “while in the territory of the United States.” See 15 U.S.C. § 78dd-3(a). Although this section has not yet been interpreted by any court, DOJ has persuaded significant foreign companies to settle FCPA cases on the theory that this provision confers jurisdiction whenever a foreign company or person causes any act to be done within the territory of the United States, by any person acting as that company’s or person’s agent. See United States v. SSI Int’l Far East Ltd., No. 06-CR-398 (D. Or. Oct. 10, 2006) (only link to the United States was a request to approve a wire transfer submitted to an affiliate’s office in Portland, Oregon).

Because the stakes of corporate prosecution are so high, because the abilities of most individuals to challenge the government are so limited, and because DOJ and the SEC want to pursue ever more aggressive interpretations of the scope of both liability and jurisdiction, we see an enormous number of FCPA cases settled on grounds that are mutually beneficial to the government and the particular settling defendants. The defendants get certainty and what they perceive to be a lesser penalty; the government gets a major international corporation or other defendant to agree that the FCPA means what DOJ and the SEC want it to mean -- and the government then can point to that agreement when negotiating with the next defendant.

When the government for many years, for almost every prospective defendant, for all practical purposes, uses plea negotiations to develop prosecutorial common law, it erodes the ability of the judiciary to do its job and skews the balance of power in the criminal justice system heavily in favor of prosecutors and away from defendants and the courts. Nevertheless, at some point, at some time, one or more well-funded, steadfast defendants will rise up and aggressively challenge the government’s interpretations of the FCPA. Indeed, some defendants finally are testing DOJ’s interpretation of 'foreign official' in the courts. See Motion to Dismiss, United States v. Carson, No. 09-00077-JVS (C.D. Cal. Feb. 21, 2011); Motion to Dismiss, United States v. Lindsey Mfg., No. 10-1031(A)-AHM (S.D. Tex. Feb. 28, 2011); Motion to Dismiss, United States v. O’Shea, No. H-09-629 (S.D. Tex. Mar. 7, 2011). At some point, someone will take one of these statutory or constitutional challenges to the FCPA all the way to the Supreme Court.

We know how this movie will end. We’ve seen it before. The Supreme Court will reject the government’s expansive interpretation of the FCPA. The well-funded indefatigable defendant ultimately will prevail.

But how many other defendants, for how long, will spend how many years in jail or pay how many millions of dollars in fines before that day comes?

Tuesday, March 15, 2011

A Conversation with Richard Alderman Regarding BAE

In October 2010, I published (here) a detailed Q&A with Richard Alderman (Director of the U.K. Serious Fraud Office).

Given that the BAE matter was still pending in the U.K. courts, Mr. Alderman declined to answer BAE related questions.

In February, I re-submitted my BAE questions (along with a few additional questions relating to the December 2010 U.K. resolution of the BAE matter - see here for the prior post) to Mr. Alderman.

Our Q&A can be found here.

Publication of Mr. Alderman's BAE-specific responses are timely given recent developments regarding BAE.

WikiLeaks recently published (here) a cable detailing certain information regarding termination of the U.K. inquiry regarding BAE and its relationship with certain Saudi officials, including in connection with the al-Yamamah contract.

Even though the cable adds little to what is already in the public domain regarding this matter (see here for the April 2009 PBS Frontline documentary Black Money - including interviews with several of the individuals referenced in the cable), the WikiLeaks cable has generated significant interest and has prompted a senior MP, Sir Menzies Campbell, to call for a Commons investigation.

The U.K. Telegraph (here) quotes Campbell as follows:

“This leak tells us how strong a case was available. If the information in this document had been before Parliament and the British public, there is no way that the Labour government could have influenced the termination of the investigation. The particular issue which will cause a great deal of annoyance is the fact there was prima facie evidence that a government department had been subjected to fraud. If prosecution is no longer possible, it is open to the Commons’ business innovation and skills committee to conduct a full investigation.”

For additional coverage, see here from Sue Reisinger (Corporate Counsel) and here from Samuel Rubenfeld (Wall Street Journal Corruption Currents).

Returning to my Q&A with Mr. Alderman, the following topics, among others, are explored:

(i) how the U.K. law on double jeopardy significantly affected the SFO's investigation of BAE and how the "current system [in the U.K.] for dealing with parallel criminal investigations conducted in a number of different countries does not work effectively and needs change;"

(ii) whether the U.K. government was faithful to its OECD obligations in its handling of the BAE matter;

(iii) criticism of the SFO-BAE plea agreement by the U.K. sentencing judge; and

(iv) "shortcomings" in the U.K. system and how Mr. Alderman would like a system that "is far more transparent [...] that commands public confidence, together with a much stronger role for the judiciary."

Monday, March 14, 2011

Tesler Pleas to Bonny Island Bribery Charges

Last Friday, the DOJ announced (here) that Jeffrey Tesler, a U.K. citizen and licensed solicitor who was recently extradited to the U.S., pleaded guilty before U.S. District Judge Keith P. Ellison (S.D. of Texas) to one count of conspiracy to violate the FCPA and one count of violating the FCPA.

In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners - Technip, Snamprogetti and JGC Corporation of Japan - in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.

According to the DOJ release announcing Tesler's plea:

"Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials."

As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. - an amount which "represents proceeds traceable" to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA's history. Tesler is to be sentenced on June 22, 2011.

In December 2009, Tesler's co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.

Both Tesler and Chodan reported to KBR's former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley's plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.

For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.

For additional coverage of Tesler's plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.

Friday, March 11, 2011

DOJ Files "Foreign Official" Opposition Brief In Lindsey Matter

Yesterday, the DOJ filed its opposition brief (here) in the Lindsey matter pending in the C.D. of California.

As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

Other "foreign official" challenges pending include the Carson matter (also in the C.D. of California - see here) and the O'Shea matter (in the S.D. of Texas - see here).

Thursday, March 10, 2011

Regime Change Due Diligence?

Today's post is from a reader with government experience who wished to remain anonymous.


"I have read with interest this blog's prior post (here) relating to the recent political turmoil in Egypt, and the possible implications of those events from the standpoint of the FCPA and other anti-corruption laws and regulations around the world. Also of interest was this blog raising the question whether the next generation enforcement device by anti-corruption officials looking at these regime changes might include the "country sweep" as a corollary to the "industry sweep" that has been used in past corruption exercises. These considerations are brought further under the klieg light when considering the evolving state of affairs in the Middle East and the possible additional regime changes that may take place after certain leaders have been in power for decades and have amassed reported family fortunes that would make the most ardent of capitalists sit up and take notice.

Reading posts on this blog and others (see here for a similar recent post on the FCPA Blog), as well as observing general media reports on the amounts that these leaders have supposedly put in their bank accounts, makes one wonder of the level of criminality that must have occurred. It shouldn't take one with an overly cynical view to surmise that we must be talking of thousands of crimes by hundreds or more actors.

Surely, there will be investigations galore by new regimes to try to discredit the vanquished and reclaim national funds. It will be easier to determine who were the beneficiaries or recipients of all the funds to the extent tracing is possible. But given the sums that are being bandied about, there will be a far larger number of sources from which such funds may have originated that ultimately found their way to the autocrats and their legion. And it will be interesting to see where the investigations and questioning leads in terms of where all that money has come from. One can only hope that people with important titles on their business cards sitting in governmental agencies around the world are also sitting up and paying attention and are planning to use those titles and the power that goes along with them to further the goals of the laws they have sworn to uphold. It goes far beyond simply freezing assets. It will be a massive undertaking. Where it leads could raise delicate issue for businesses. Perhaps also national security and statecraft.

All this also makes one test their empathy skills by playing the "What-Would-You-Do" game. That game goes something like this: imagine you were standing in the high priced wing-tips of a Chief Risk/Compliance Officer or a General Counsel of any public company that has been doing business in that part of the world. What should you be thinking just about now? Surely you have seen the news reports and heard the stories. Do you just shake your head on the speed with which change occurs? Or would you feel compelled (either because you believe it's the right thing to do, or, more basically, because you would never want to be in a position of being criticized later for at least never having raised it) to walk down the hall to the CEO's office or the board room for that matter, and say: "we really should be thinking about running an audit or review or bringing in people to run an audit of everything we've been doing in [Insert Country or Countries of Choice] just so we understand what we've got in terms of any issues. We should be refreshing and testing our protocols." Board members should be thinking along these lines too. They should be asking these kinds of questions if their own management teams aren't raising them. You can bet your shareholders' bottom dollar that plaintiffs' counsel are or will be thinking like this and pursuing claims, and D&O insurance providers will be concerned about it too. It may be a long way off, and telescoping is never easy, but it will be surprising if the fallout zone in the aftermath doesn't include some of this laundry."

Wednesday, March 9, 2011

FCPA Insurance

This "new era of FCPA enforcement" (see here) has resulted in “a thriving and lucrative anti-bribery complex” that is - in the words of the DOJ's former FCPA head from a different era - “good business for law firms […] good business for accounting firms, […] good business for consulting firms, the media - and Justice Department lawyers who create the marketplace and then get [themselves] a job." (See here).

FCPA practices are now profit centers at law firms and accounting firms and dozens of companies have appeared on the landscape to provide all imaginable services related to the FCPA. Persons "working in this growing field" can now even receive "a professional accreditation" as an anti-bribery compliance specialist. (See here).

As if further evidence was needed that FCPA Inc. is indeed a full-fledged industry in and of itself, an insurance company has begun to offer Foreign Corrupt Practices Act insurance.

Chartis, a New York based "world leading property-casualty and general insurance organization" recently announced (here) the introduction of "Investigation Edge, developed by its Executive Liability Division as the first insurance solution to cover company costs arising from SEC investigations, including those related to internal investigations."

According to the release, "Investigation Edge covers legal expenses, discovery costs and insurable settlements resulting from investigations by enforcement authorities – including the SEC and the Department of Justice – into insider trading, restatements, accounting fraud and reporting violations."

Need a specific endorsement for FCPA issues?

No problem - as the release notes "coverage is also available via endorsements for investigations into Foreign Corrupt Practices Act violations and derivative investigations."

It is not surprising that an insurance company is now offering such a product.

FCPA professional fees and expenses have reached, in some cases, nine figures such as Avon's recent disclosure that it has spent approximately $100 million just to investigate conduct that may implicate the FCPA. In addition will be any enforcement action fines, penalties, and disgorgement, as well as any post-enforcement action compliance fees and expenses. In addition, collateral civil litigation seems to have become a new norm (see here for example).

However, would it not be easier, more cost efficient, and more desirable for any number of policy reasons to address the root causes for why the "new era of FCPA enforcement" exists in the first place?

For some - yes.

For others - no. The current era is suiting them just fine.

Tuesday, March 8, 2011

Another "Foreign Official" Challenge

For the third consecutive Monday, an FCPA defendant has filed a motion to dismiss challenging the DOJ's interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

Yesterday in the S.D. of Texas, lawyers for John Jospeh O'Shea filed this motion.

In November 2009, O'Shea was charged in an eighteen count indictment (see here). See here for the DOJ release.

O'Shea is the former general manager of ABB Network Management. In September 2010 ABB Ltd. and certain of its affiliated entities resolved an FCPA enforcement action based in part on the conduct at issue in the O'Shea indictment. See here for the DOJ release and here for the prior post.

O'Shea's trial is scheduled to begin on May 3, 2011.

For the other recent "foreign official" challenges (both in the C.D. of California) see here and here.

Monday, March 7, 2011

Salvoch Enforcement Action Flies Under The Radar

It is not every day that a former chief financial officer is criminally charged with conspiracy to violate the FCPA.

On December 17, 2010 a criminal information (here) was filed under seal against Manuel Salvoch, the former CFO of LatiNode. On January 11, 2011 Salvoch was arrested, the case unsealed, and a plea agreement (here) was executed on January 12, 2011.

This is likely the first you have heard of the Salvoch enforcement action. The DOJ did not issue a press release and, to my knowledge, this enforcement action has never been reported.

Salvoch was charged in connection with payments to Hondutel (see here), according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras. The Hondutel payments have also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode) and Manuel Caceres (a former Vice President of Business Development) (see here).

The theory of prosecution in these cases is the same theory of prosecution being challenged in the Carson and Lindsey cases (see here and here) - that employees of alleged state-owned or state-controlled enterprises are "foreign officials" under the FCPA.

This theory of prosecution was also the support for the March 2009 enforcement action against LatiNode (see here) a former privately held Florida telecommunications company that agreed to a pay a $2 million criminal penalty for violating the FCPA in connection with alleged Hondutel payments as well as payments to officials of Tele Yemen, the Yemeni government-owned telecommunications company. LatiNode was acquired by eLandia International Inc. (an issuer) in June 2007.

The conduct at issue in the Salvoch criminal information and plea agreement is similar to the conduct at issue in the Granados and Caceres indictment (see here for the prior post).

The Granados and Caceres case remains open (their trial is set for September 26, 2011) and in his plea agreement Salvoch agreed to "cooperate fully" with the DOJ including by "providing truthful and complete information and testimony" at any trial, or other Court proceeding. According to the docket, Salvoch is to be sentenced on March 23rd, but it is likely that his sentencing will be delayed until after the Granados and Caceres trial.

Thanks to Gregory Bates (here - Squire Sanders) who stumbled upon this case while wandering around on the DOJ's FCPA website. Bates is a contributor to Squire Sanders' Anticorruption blog (see here).

Friday, March 4, 2011

U.K. Roundup

Is the U.K. Serious Fraud Office's ("SFO") active engagement policy a bit too active (and too private as well), is anyone left at the SFO to activley engage, the recent Mabey & Johnson individual sentences, and the U.K. anti-corruption champion calls out Bribery Act plc ... its all here in a special U.K. Roundup.

Corporate Crime Reporter Questions SFO's Active Engagement Policy

The SFO has a clear policy of active engagement when it comes to the Bribery Act and I have previously stated (here) that this policy ought to be modeled by other enforcement agencies."

Corporate Crime Reporter ("CCR"), in a recent piece (here) titled "Behind Closed Doors, UK Anti-Corruption Chief Alderman Advises Corporations, Law Firms" questions whether this engagement approach has become too active and questions whether the engagement needs to take place behind closed doors.

Writes CCR - "You would never see a US federal prosecutor visit a private law firm to give private advice – behind closed doors – to the firm’s corporate defense lawyers and their clients. But the chief law anti-corruption law enforcement official of the UK says – no problem. Over the past couple of years, Alderman has been visiting American law firms regularly. Briefing the lawyers. Answering questions from corporate clients. All behind closed doors. All in secret. To the very same corporations that Alderman will prosecute if they engage in corruption overseas."

Alderman is quoted as saying he is "an equal opportunity debriefer" and that he has met with, among others, U.K. anti-corruption public interest groups - like Corner House.

As I highlighted in this prior post, in September 2010, I was pleased to accept the invitation of the SFO to visit its offices and meet top-level personnel to discuss Bribery Act and other anti-corruption issues and topics.

Another SFO Departure

With all the recent SFO departures one might wonder whether there is anyone left at Elm House to actively engage.

Recent SFO departures have included Robert Amaee (former SFO Head of Anti-Corruption) who jointed Covington & Burling's London office and Charlie Monteith (former SFO Head of Assurance) who jointed White & Case's London office. (See here for the prior post).

Add Kathleen Harris (former head of the Fraud Business Group at the SFO) to the list. Arnold & Porter recently announced (here) that Harris will join the firm's London office as a partner in June. Arnold & Porter Chair Thomas Milch said Harris "is especially well-positioned to help navigate the UK's new Bribery Act and address the difficult investigatory, compliance, and defense challenges that companies face in a heightened global enforcement environment."

As has been reported, Alderman is also looking to retire from the SFO in the next year.

Mabey & Johnson Individual Sentences

This prior post discussed the February 10th guilty verdicts of Charles Forsyth and David Mabey (two former directors of Mabey & Johnson Ltd.) for inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein. Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty.

Recently, the SFO announced (here) the following sentences:

Forsyth - 21 months imprisonment, disqualified from acting as a company director for five years and ordered to pay prosecution costs of £75,000;

Mabey - eight months imprisonment, disqualified from acting as a company director for two years and ordered to pay prosecution costs of £125,000;

Gledhill - eight months imprisonment, suspended for two years.

As noted in the release:

"In passing sentence HHJ Rivlin QC said 'The bare truth of this case is that Mr Forsyth bears the most culpability'. In relation to David Mabey, HHJ Rivlin QC said 'When a director of a major company plays even a small part, he can expect to receive a custodial sentence. SFO Director Richard Alderman said 'This shows that the SFO is determined to go after senior corporate executives who break the law. I am pleased with the result. It sends out a very strong message from the courts on this type of offending.'"

For additional analysis of the Mabey & Johnson individual sentences see this recent alert from Amaee and John Rupp of Covington & Burling. The authors note as follows. "It is clear that once the UK enacts its new Bribery Act, UK prosecutors will take a close look at the provisions contained in section 14 of the Bribery Act to deal with any Senior Officers of companies who can be said to have consented to or connived in the commission of bribery offences and that the courts will not shy away from imposing appropriate custodial sentences on those found guilty."

As I noted in the prior post, in just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted (and now sentenced) more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.

Kenneth Clarke's Comments

It is not every day that a high-ranking government official lends credence to fear mongering (see here) and mass hysteria (see here) comments regarding a soon-to-be implemented law. But that is what Kenneth Clark, a U.K. Justice Secretary and the U.K's international anti-corruption champion (see here), did in a recent appearance in the House of Commons. During a Q&A session (see here for the video - approximately the 1 minute 45 second mark) Clark stated as follows: "I hope to put out very clear guidance to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act."


A good weekend to all.

Thursday, March 3, 2011

Significant China Law Development

The June 2010 OECD Working Group on Bribery Annual Report (here) notes that China's "Ministry of Supervision informed the [OECD] Secretariat that China had begun considering how it would establish an offence of bribing a foreign public official, but was not yet at the stage of drafting legislation."

As this recent Covington & Burling alert highlights: "on February 25, 2011, the legislature of the People’s Republic of China (“PRC”), the National People’s Congress, passed a slate of 49 amendments to the Criminal Law, one of which is a provision that criminalizes paying bribes to non-PRC government officials and to officials of international public organizations (“the Amendment”)." The alert explain that "this Amendment represents the first instance in which PRC law has prohibited PRC nationals and PRC companies from paying bribes to non-PRC government officials."

Eric Carlson (here), an attorney based in Covington's Beijing office who specializes in anti-corruption compliance with a particular focus on China and other regions of Asia and one of the authors of the alert, answered the following questions.

Is this China’s version of the FCPA?

At one level, the Amendment’s aim appears to be similar to the FCPA’s -- prevent citizens and companies based in the country from bribing government officials outside the country. This is China’s first foray into this area, however, and the provisions are not as detailed or developed as in certain other countries’ anti-bribery laws. The PRC Amendment is a rather high-level law, whereas the text of the FCPA includes considerably more detail, even if the interpretation of those details is being actively debated and litigated. The absence of clear definitions, exceptions, and affirmative defenses also would appear to require PRC prosecutors to exercise somewhat more discretion in interpreting and enforcing the law.

Is China really going to enforce this law against its own companies operating outside of China?

Unclear. China’s enforcement of its domestic bribery laws historically has been somewhat uneven and focused mainly on the demand side (i.e., prosecuting officials who take bribes). Recently, however, the government has shown an increasing willingness to target bribe-payers as well, as corruption remains a primary concern of the general population and thus a concern for the government and ruling Communist Party, which is at its core focused on social stability. It remains to be seen whether the Amendment will actually be enforced in a way that deters bribe-paying by PRC companies and citizens. (To be fair, a goodly number of countries have strict laws criminalizing bribery of foreign officials outside their countries but have done little to enforce these laws.)

How will this new law affect multinationals operating in China?

The impact will obviously depend on how a multinational structures its operations in China. The Amendment (like the underlying Criminal Law) applies to all PRC citizens, wherever located, all natural persons of any nationality within China, and all companies, enterprises, and institutions organized under PRC law, which generally includes, in addition to PRC domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises (WFOEs), and representative offices. Under the Amendment, a joint venture between a PRC company and a non-PRC company organized under PRC law, or a WFOE, could be prosecuted for paying bribes to non-PRC government officials. (Paying bribes to Chinese government officials is of course already illegal under pre-existing law.)

For most multinationals whose China operations don’t do any business outside of China, the larger risk may be China’s existing criminal and commercial bribery laws. (Many multinationals operating in China are not aware of local commercial bribery laws, which prohibit both public- and private-sector bribery.)


As suggested above, having a law on the books and enforcing a law can sometimes be two different things. However, based on numerous media reports (see here for instance) there would seem to be plenty of enforcement opportunities when China's law comes into force.

Wednesday, March 2, 2011

The Shrinking U.K. Bribery Act

Recent developments reported by the U.K. Telegraph suggest that when Bribery Act guidance is finalized and released, the Bribery Act will look very much like the FCPA. In fact, because of the Bribery Act's adequate procedures defense and other hinted at limitations, the Bribery Act may turn out to be more lenient than the FCPA.

The Telegraph reported (here) that eventual guidance to be released by the U.K. government "will make allowances for the use of so-called 'facilitating payments'" and that the guidance "will clarify how the law will view corporate hospitality and will give companies some protection against illegal acts committed by joint venture partners."

According to the Telegraph, "the new guidance will acknowledge [facilitating payments] payments are a global problem that cannot be eradicated overnight." According to the Telegraph, the eventual guidance "will say that while facilitating payments remain illegal, payments not considered 'serious' may not attract prosecution."

This eventual guidance seems to be similar to the conclusion Congress arrived at in 1977 when enacting the FCPA. For instance, House Report No. 95-640 (September 28, 1977) states as follows:

“The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”

Even though the Bribery Act will still apparently prohibit facilitating payments - in contrast to the FCPA's express facilitating payment exception - numerous prior posts (see here, here and here for example as well as all the CustomsGate enforcement actions) raise the issue of whether the enforcement agencies recognize such an exception and whether the FCPA's facilitating payment exception has any real meaning.

The expected U.K. guidance on corporate hospitality would seem to be akin to the FCPA's current affirmative defense for "reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of a foreign official" " directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency theorof."

Without the benefit of an actual analysis of the expected guidance on joint ventures, it is a bit difficult to draw conclusions from the Telegraph article. But if, as reported, the eventual guidance "will give companies some protection against illegal acts committed by joint venture partners" this protection will make the Bribery Act even more lenient than the FCPA (or at least FCPA enforcement theories).

Several FCPA enforcement actions in recent years, including some of the most high profile (see e.g., Bonny Island, Nigeria enforcement actions), have been based on conduct of joint venture partners.

Of note, the reported U.K. guidance regarding joint ventures would seem to conflict with the justification underlining the recent SFO charges against MK Kellog Ltd. under the Proceeds of Crime Act. (See here).

The oft-cited statement that the Bribery Act is the "FCPA on steroids" was curious to begin with; the statement now appears to be completely off-base given expected guidance on the Bribery Act.